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Intel CEO Bestows Optimism Despite Pandemic Perils

Intel CEO Bob Swan painted a bright and hopeful picture of the chipmaker’s future in his annual letter. He talked up the company’s record performance in 2019, its position in emerging markets like artificial intelligence (AI) and edge computing, and a return to rapid innovation.

Perhaps the most interesting thing about the letter was what wasn’t said. There was not one mention of COVID-19, the coronavirus, or even persevering through difficult times. Instead, Swan’s letter read like a pat on the back and a rally cry.

“We are positioned for another strong year in 2020,” he wrote optimistically and in stark contrast to the company’s securities and exchange commission filing last week.

While it’s true that Intel posted record numbers in 2019, driven in large part by strong growth in the company’s data center group, the company is, in fact, bracing for a sucker punch from damage caused by the pandemic.

In the SEC filing, Intel warned investors that the rapidly deteriorating economic situation caused by COVID-19 had the potential to erode the company’s financial standing. Intel also announced a halt to planned stock buybacks, but promised it would still deliver dividends.

Further, Intel claims the halt to share repurchases are not tied to plans to take advantage of government assistance made available by the $2.2 trillion federal stimulus package signed into law last week.

Diversified Portfolio

Don’t keep all your eggs in one basket — it’s economics 101 — and in Swan’s annual letter, he touted the diversity of Intel’s product portfolio.

“We are innovating and investing across six pillars of technology that will fuel our product leadership: process and packaging, architectures, memory, interconnects, security technologies, and software,” he wrote.

In a recent report, Omdia credited much of Intel’s success in 2019 on the company’s diverse product line, which enabled the company to post 1.3% growth in a market that suffered its worst year since 2009, declining 11.7%.

“Once regarded as a PC-centric microprocessor supplier, Intel is now a diversified vendor of solutions ranging from logic chips, to software, to analytics,” wrote Ron Ellwanger, senior analyst, semiconductor manufacturing at Omdia, in the report.

Intel also benefited from strong growth its data center group (DCG) which, according to Swan, accounted for more than 50% of the company’s revenues in the fourth quarter. Intel aims to maintain this momentum through 2020, with the launch of its third-generation Intel Xeon Scalable processors in the second quarter.

However, it remains to be seen if the diversity of Intel’s portfolio will be enough to shrug off a global recession driving supply chain shortages and suppressed demand from consumers and enterprises. Intel may have been able to post growth in a struggling market in 2019, but it also wasn’t contending with a pandemic that threatens to shut down its operations around the world.

Two IDC reports published last week paint a very different picture of the semiconductor and server markets, and predict painful losses for many companies in this space during the first two quarters of 2020.

IDC predicts an 80% chance the pandemic will result in a significant contraction in annual semiconductor revenues. The firm is projecting a decline of 6%.

Meanwhile, IDC anticipates that the pandemic will also deal a blow to the server and enterprise external storage markets in 2020. Analysts warn the spread of COVID-19 will disrupt demand and suppress revenues.

New Battle Grounds

Despite these headwinds, Swan suggests that AI, 5G and the edge will be the company’s battlegrounds in 2020.

Citing an IDC report, he wrote that 75% of enterprise applications are expected to use AI by 2021. But while Intel has invested heavily in AI, building it into many of its recent chips, the company has suffered setbacks.

Earlier this year, Intel abandoned its line of Nervana neural networking processors and pivoted to developing technology based on Habana Labs’ inference and training processors.

Elsewhere, in the 5G space, Intel earlier this year announced its first 5G base station processor, the Atom P5900.

―SDX Central

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